EXHIBIT G-3
Engineering Service Company
Form of
SERVICE AGREEMENT
This Service Agreement ("Agreement") dated as of _________,___ by and
between _______________ ("KENG"), a New York limited liability company and
_____________[list companies} (individually a "Client Company" and collectively,
the "Client Companies"). KENG and the Client Companies may each be referred to
herein as a "Party," and collectively referred to herein as the "Parties."
WITNESSETH:
WHEREAS, KENG is a wholly owned subsidiary of KeySpan Corporation
("KeySpan") which is a registered holding company under the Public Utility
Holding Company Act of 1935, as amended (the "Act");
WHEREAS, the Securities and Exchange Commission (the "SEC") has
approved and authorized KENG as a service company pursuant to Section 13(b) of
the Act and the SEC regulations promulgated thereunder to provide services to
KeySpan and its subsidiaries; and
WHEREAS, KENG and the Client Companies desire for KENG to provide, and
the Client Company to accept, the services provided for hereunder in accordance
with the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual representations,
covenants and agreements hereinafter set forth, and intending to be legally
bound hereby, the Parties hereto agree as follows:
ARTICLE 1
SERVICES
1.1 Services Offered. Exhibit I to this Agreement describes the
services that KENG offers to furnish to a Client Company (in accordance with the
terms and conditions set forth herein) upon written request of such Client
Company. In addition to the services described in Exhibit I hereto, KENG may
also provide a Client Company with such special services, as may be requested by
such Client Company in writing, which the Service Company concludes it is able
to perform. In supplying services hereunder to a Client Company, KENG may
arrange, where it
deems appropriate, for the services of such experts, consultants, advisers and
other persons with necessary qualifications as are required for, or pertinent
to, the performance of such services.
1.2 Services Selected.
(a) Each Client Company shall make its initial selection of the
services set forth in Section 1.1 above that it agrees to receive from KENG by
providing KUS an executed service request in the form set forth in Exhibit II.
(b) By December 1 of calendar year, KENG shall send an annual
service proposal to each Client Company listing the services proposed for the
next calendar year. By December 31, each Client Company shall notify KENG in
writing of the services it elects to receive from KENG during the next calendar
year.
1.3 Modification of Services. A Client Company shall have the right
from time to time to amend, alter or rescind any activity, project, program or
work order provided that (i) such amendment or alteration which results in a
material change in the scope of the services to be performed or equipment to be
provided is agreed to by KENG, (ii) the cost for the services covered by the
activity, project, program or work order shall include any expense incurred by
KENG as a direct result of such amendment, alteration or rescission of the
activity, project, program or work order, and (iii) no amendment, alteration or
rescission of an activity, project, program or work order shall release a Client
Company from liability for all costs already incurred by or contracted for by
KENG pursuant to the activity, project, program or work order, regardless of
whether the services associated with such costs have been completed. Any request
made by a Client Company pursuant to this Section 1.3 shall be in writing to
KENG and shall take effect on the first day of the first calendar month which is
at least thirty (30) days after the day that the Client Company sent the written
notice to KENG.
1.4 Service Receipt Limitations.
(a) __________[insert utility name] agrees that:
(i) it will not incur a charge hereunder except in
accordance with ________________ [insert applicable State] and the rules,
regulations and orders of the _________________[insert name of applicable state
public service commission] promulgated thereunder; and
(ii) it will not seek to reflect in rates any cost incurred
hereunder to the extent disallowed by the ___________ Public Service Commission.
2
(b) Notwithstanding anything in this Agreement to the contrary,
KENG and ________ agree that because of the agreements set forth in Section
1.4(a) above, ______________ will not accept services from KENG hereunder if the
cost to be charged for such services differs from the amount of the charges
___________is permitted to incur under _______________ [insert applicable State]
and the rules, regulations and orders of the _________________[insert name of
applicable state public service commission] promulgated thereunder.
ARTICLE 2
COMPENSATION and billing
2.1 Compensation. As and to the extent required by law, KENG shall
provide the services hereunder at cost. Exhibit I hereto sets forth the rules
KENG shall use for determining and allocating costs to the Client Companies. KUS
shall advise the Client Companies from time to time of any material change in
the method of assignment or allocation of costs hereunder, and no such material
change shall be made unless and until KENG shall have first given written notice
to the SEC not less than sixty (60) days prior to the proposed effective date
thereof.
2.2 Invoices. By the ___ day of each month, KENG shall render a
monthly xxxx to each Client Company which shall reflect the billing information
necessary to identify the costs charged for the services KENG provided in the
preceding month. A Client Company shall pay its invoice to KENG within ___ days
after receiving the invoice.
ARTICLE 3
TERM AND TERMINATION
3.1 Effective Date. This Agreement shall become effective on the date
hereof, subject to receipt -------------- of all required federal or state
regulatory approvals.
3.2 Termination. This Agreement shall continue in full force and
effect with respect to KENG and a Client Company until (a) terminated by the
Client Company upon sixty (60) days advance written notice to KENG, or (b)
terminated by KENG upon sixty (60) days advance written notice to a Client
Company. This Agreement shall also be subject to termination or modification at
any time, without notice, if and to the extent performance under this Agreement
may conflict with the Act or with any rule, regulation or order of the SEC
adopted before or after the date of this Service Agreement.
3
ARTICLE 4
MISCELLANEOUS
4.1 Modification. Except as set forth in Article 2 and Sections 1.3,
3.2 and 4.4, no amendment or other modification of this Agreement shall be
effective unless made in writing and executed by all of the Parties to this
Agreement.
4.2 Notices. Where written notice is required by this Agreement, said
notice shall be deemed given when mailed by United States registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
To KENG:
[Insert Name and address]
To Client Company: The name and address of the person designated in
writing ----------------- to KENG on the date the Client Company
executes this Agreement.
4.3 Accounts. All accounts and records of KENG shall be kept in
accordance with the General Rules and Regulations promulgated by the SEC
pursuant to the Act, in particular, the Uniform System of Accounts for Mutual
Service Companies and Subsidiary Service Companies in effect from and after the
date hereof. Upon request, KENG shall permit a Client Company reasonable access
to the accounts and records of KENG relating to the services performed for such
Client Company hereunder.
4.4 Additional Client Companies. After the effective date of this
Agreement, any new or existing direct or indirect subsidiary of KeySpan may
become an additional Client Company under this Agreement by becoming a signatory
to this Agreement.
4.5 Waiver. Except as otherwise provided in this Agreement, any
failure of a Party to comply with any obligation, covenant, agreement, or
condition herein may be waived by the Party entitled to the benefits thereof
only by a written instrument signed by the Party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement, or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
4.6 No Third Party Beneficiaries. Nothing in this Agreement is
intended to confer upon any other person except the Parties any rights or
remedies hereunder or shall create any third party beneficiary rights in any
person. No provision of this Agreement shall create any rights in any such
persons in respect of
4
any benefits that may be provided, directly or indirectly, under any employee
benefit plan or arrangement except as expressly provided for thereunder.
4.7 Governing Law This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (regardless of the laws that
might otherwise govern under applicable principles of conflicts of law).
4.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.9 Entire Agreement. This Agreement including the exhibits referred
to herein or therein, constitute the entire agreement and understanding of the
Parties in respect of the transactions contemplated by this Agreement. There are
no restrictions, promises, representations, warranties, covenants or
undertakings other than those expressly set forth or referred to herein or
therein. This Agreement supersedes all prior agreements and understandings
between the Parties with respect to the transactions contemplated by this
Agreement.
4.10 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect.
4.11 Independent Contractor Status. Nothing in this Agreement shall be
construed as creating any relationship between KENG and the Client Companies
other than that of independent contractors.
4.12 Assignment. KENG shall not assign this Agreement, or any of its
rights or obligations hereunder without the prior written consent of the Client
Companies, such consent not to be unreasonably withheld. A Client Company shall
not assign this Agreement, or any of its rights or obligations hereunder without
the prior written consent of KENG. This Agreement shall inure to the benefit and
shall be binding upon the Parties and their permitted successors and assigns.
5
IN WITNESS WHEREOF, KENG and the Client Companies have caused this
Service Agreement to be signed by their respective duly authorized officers as
of the date first above written.
[KENG]
By:____________________________
Name:
Title:
[LIST CLIENT COMPANIES]
By:____________________________
Name:
Title:
6
EXHIBIT I
Description of Services, Cost Accumulation, Assignment
and Allocation Methodologies for KUS
A. Description of Services Offered by KeySpan Engineering Services
General Engineering
Advise and assist Client Companies in the study, planning, engineering,
maintenance and construction of energy plant facilities of each Client Company
and of the Gas Systems and the Electric Systems as a whole, and advise, assist
and manage the planning, engineering (including maps and records) and
construction operations of Client Companies. Develop and administer quality
assurance programs of Client Companies.
Develop long-range operational programs for all the Client Companies and advise
and assist each Client Company in the coordination of such programs with the
programs of the other Client Companies.
B. Methods of Allocation
Cost of service will be determined in accordance with the Act and the rules and
regulations and orders thereunder, and will include all costs of doing business
incurred by KENG, including a reasonable return on capital, and all associated
taxes.
KENG will maintain an accounting system for accumulating all costs on a project,
activity or other appropriate basis. The accounting system will use codes to
assign charges to the applicable costs center, project, activity and account.
Records will be kept by each cost center of KENG in order to accumulate all
costs of doing business. Expenses of the department will include salaries and
wages of employees, materials and supplies and all other expenses attributable
to the department. Labor cost will be loaded for fringe benefits and payroll
taxes. To the extent practicable, time records of hours worked by service
company employees will be kept by project and activity. In supplying services,
KENG may arrange where it deems appropriate,
7
for the services of experts, consultants, advisors and other persons with
necessary qualifications as are required to perform such services. KENG will
establish annual budgets for controlling the expenses of each department.
Monthly KENG costs will be directly assigned to Client Companies where possible.
Amounts that cannot be directly assigned will be allocated to Client Companies
by means of equitable allocation formulae or clearing accounts. To the extent
possible such allocations shall be based on cost-causation relationships. All
other allocations will be broad based. In some instances, KENG cost centers
which perform work for other service company cost centers may use a surrogate
allocation method that mimics the allocations of the receiver cost center. Each
formula will have an appropriate basis such as meters, square footage, etc.
Each Client Company will take agreed upon services and such additional or
general or special services, whether or not now contemplated, as are requested
from time to time by such Client Company and which KENG concludes it is able to
perform. No amendment, alteration or rescission of an activity or project shall
release a Client Company from liability for all costs already incurred by, or
contracted for, by KENG pursuant to the project or activity regardless of
whether the services associated with such costs have been completed.
Allocation percentages will be calculated on historical data where appropriate
and updated annually. Due to the unique nature of the management services
agreement contract with the Long Island Power Authority (LIPA), the bases of the
LIPA (such as revenues, assets, etc. managed on their behalf) will be included,
with the applicable Client Company's data, in order to determine appropriate
allocations.
The method of assignment or allocation of costs shall be reviewed annually or
more frequently if appropriate. If the use of a basis of allocation would result
in an inequity because of a change in operations or organization, then KENG may
adjust the basis to effect an equitable distribution.
The applications of Service Allocations are described more fully below.
Service Department
Or Function Basis of Allocation
------------------ -------------------
General Engineering Clearing
Property
3-point formula (1,2)
8
Human Resources # of Employees
3-point formula (1,2)
Definition of Allocation Factors to be used by KENG
---------------------------------------------------
Assets - A ratio based on total assets at the end of the year, the numerator of
which is for a specific client company and the denominator being all recipient
client companies. This ratio will be calculated annually based on actual
experience.
Payroll - A ratio based on total wages, salaries, commissions and other forms of
compensation paid during the year which are reportable, for federal income tax
purposes, as taxable income to the employee, the numerator of which is for a
specific client company and the denominator being all recipient client
companies. This ratio will be calculated annually based on actual experience.
Property - A ratio based on gross fixed assets, valued at original acquisition
costs, and investments owned in other companies, including construction work in
progress, at the end of the year, the numerator of which is for a specific
client company and the denominator being all recipient client companies. This
ratio will be calculated annually based on actual experience.
Revenue - A ratio based on the revenue for the previous calendar year, the
numerator of which is for a specific client company and the denominator being
all recipient client companies. This ratio will be calculated annually based on
actual experience.
3-Point Formula (1,2) - This formula consists of three factors. It is designed
to be an equitable and feasible tool to act as a surrogate when direct charging
or cost causal relationships can not be established. It is a calculated ratio,
which compares each of the formula factors for the Client Company to the total
of the same factors for all recipient Client Companies. The factors for (1)
would be an equal weighting of Revenue, Property and Payroll (i.e., the
"Massachusetts" Formula). The factors for (2) would be an equal weighting of
Revenue, Assets, and Expenses. These ratios will be calculated annually based on
actual experience.
9
EXHIBIT II
Form of Initial Service Request
The undersigned requests from KENG all of the services selected below.
The services requested hereunder shall commence on ______________ and be
provided through _____________________.
Service Yes No
General Engineering ___ ___
[Client Company]
By ________________________
Name:
Title:
10
